PROPERTY REPORT - Issue 78

The Chip Has Become More Expensive - Part 1

I was discussing the property market with two friends the other night – one has just built a house in Doreen and the other has bought a 3-bedroom home in Clayton. Both of their experiences are common: the friend building has faced serious delays and increased expenses. The friend buying was finally able to secure a 3-beroom, 1-bathroom 600-sqm property for no less than seven figures. We were talking about increasing rates. The reality is, the central bank is hitting housing hard, but commodity prices aren’t coming down. In short, there is less stuff, but we are paying more for it.

‘$8.90 for a VB,’ I said.

‘And look at the price of chips!’ said my mate.

But the chip has not become more expensive. It’s the person frying the chip who has. What’s more, the chip probably isn’t any tastier because the worker is being paid more. Perhaps the owner has bought cheaper oil to offset the increase in wages. Either way, the worker doesn’t care about the chip.

Hitting housing isn’t changing the fact that we have less stuff worth more. It isn’t even shaving prices in a huge way. While some property owners have taken a hit in the short term, over long-term trends, average values are, and our general economic is, upstaging doomsayers.

Image Source:  Macrobond, Macquarie Macro Strategy May 2022

As you can see from the above Macquarie Group Limited data, while the global economy dipped sharper during COVID than the GFC, it has been quicker to recover. This bodes well for the future. But the question remains, how will housing look in the next 12, 24, 48 months?

To address this question, I will share Macquarie’s recently published predictions for the future of the housing market in Australia. I will start with the first prediction this month and finish next month with the remaining four. Alongside, I will leave comments on how suitable these predictions are for the Yarra Valley and Kinglake Ranges.

1. As the single largest adult generation in Australia, Millennial preferences are expected to begin shaping property demand over the next decade.

Millennials as a demographic is defined as anyone born between 1981 and 1996. While the “generation” as a unit of measurement may be one of the weaker bonding agents when it comes to predicting how people will behave, it is a fact that the last two decades of social and cultural changes have changed expectations around available services and living expectations. This doesn’t only apply to internet speeds, for example, but amenities. Smaller localities have been absorbed into nearby townships as families gravitate towards school zones, shops, and Coles and Uber delivery services. Gone is the general store.

Floor plans must also respond to change; not only are homes expected to be environmentally sustainable, but as of October 2023 the NCC will raise the minimum level of thermal performance to a 7 star energy rating for new homes. More to the point, homes are not only built around Victoria’s Mediterranean weather, but around a lifestyle that entertains in the kitchen, rather than the front sitting room. We show off every room of our home, as guests walk down the LED-lit corridor tastefully decorated, past the master, kids rooms (with pillows neatly arranged), into the open plan living room and out onto the alfresco (Bernard Salt writes good content around this).

The consequence? Owners need to consider millennial tastes when renovating and/or remodelling. Pay attention to council plans and long-term development schemes for your area or desired postcode. Future proofing an investment has never been more important, as we come to rely less on capital growth as a given and look to how property as an asset class can stand on its own two feet.

Next week I will go into Macquarie predictions about the role of younger buyers, the fate of the backyard, and how energy efficiency will play a role in values. Speak to you then.